JP Morgan analysts Shawn Ng, Karen Li, SM Kim, Jenny Qiu and Sunny Su have kept their &ldquo overweight&rdquo call on Yangzijiang Shipbuilding.

 

In their June 26 report, the analysts foresee the group entering a &ldquo sweet spot&rdquo for its earnings, thanks to margin expansion. This expansion is expected to become more visible in Yangzijiang&rsquo s results for the 1HFY2024 ended June 31 the forecast for the group&rsquo s half-year earnings is also supposed to be the strongest on record.

 

&ldquo Yangzijiang Shipbuilding&rsquo s proven execution track record and robust orderbook (US$16.08 billion or $21.85 billion) are expected turbocharge earnings growth till at least FY2026,&rdquo the analysts write. &ldquo Benefiting from a favourable delivery mix, stable steel costs and foreign exchange (US dollar versus the Chinese renminbi) effects, we forecast Yangzijiang Shipbuilding&rsquo s net profit after tax (NPAT) to reach a historical high in 1HFY2024 led by shipbuilding margin expansion,&rdquo they add.

 

The analysts, who estimate the group&rsquo s NPAT to grow by 34% y-o-y to RMB2.3 billion ($429.8 million), says it is &ldquo worth noting&rdquo that Yangzijiang Shipbuilding has &ldquo consistently outperformed&rdquo its regional peers led by better operational execution, order picking strategy and cost discipline.

 

Furthermore, they note that the group&rsquo s orderbook has not peaked, with room for additional growth.

 

&ldquo Yangzijiang Shipbuilding has [the] capacity to take on additional orders, and we expect it to close out the remaining [estimated] 50% of 2027 delivery slots and some 2028 slots in 2H2024,&rdquo the analysts write.

 

They add that shipowners are unfazed by the ongoing US investigations into the Chinese shipbuilding sector and have continued to enquire to place orders for dual-fuel (DF) containerships (mid-sized, charter owners), product tankers and gas carriers.

 

As such, the analysts see that Yangzijiang Shipbuilding is &ldquo well-positioned&rdquo to exceed its order guidance of US$4.5 billion for the FY2024 with ship owners likely to continue locking in delivery despite a long delivery lead-time. During its business update for the 1QFY2024 ended March 31, the group revealed that it has already reached 74% of its full-year guidance with US$3.32 billion order wins.

 

&ldquo With a broadening shipping fleet renewal unfolding (including dry bulk), we expect Yangzijiang Shipbuilding&rsquo s better operating leverage and prospective shipyard expansion (medium-term) to extend its strong order spree,&rdquo the analysts write.

 

&ldquo Our channel checks and Alphaliner suggest that more new orders could materialize from major liners in 2H2024 with keen interest on 8,000 [to] 17,000 TEUs (or twenty-foot equivalent units) vessel size,&rdquo they add.

 

Finally, shipbuilding prices are poised to remain higher for longer, which will also benefit the group.

 

At present, the median orderbook-to-capacity ratio has increased to 3.7 times, making it the highest since 2010 and nearly 1.7 times above the average ratio of 2.2 times between 2010 to 2020 due to fewer active shipyards, limited capacity expansion and industry consolidation.

 

Looking ahead, the analysts expect newbuild prices to stay elevated unless tier-one shipyards pursue irrational capacity expansion, which will mirror the price declines that were apparent during the 2010s.

 

With these positives in mind, the analysts have increased their target price to $2.80 from $2.50 previously.

 

Yangzijiang Shipbuilding is expected to report its results during the week of Aug 12.

Felicia Tan        Published on Tue, Jul 02, 2024

https://www.theedgesingapore.com/amp/capital/brokers-calls/jp-morgan-raises-yangzijiang-shipbuildings-tp-280-it-sees-it-entering-sweet